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Recent Blog Posts
Bankruptcy Writes Off Vehicle Accident Claims, Unless Intoxicated
Bankruptcy writes off claims against you from a vehicle accident for personal injuries and property damage, IF you weren’t intoxicated.
Vehicle Accident Claims
If you had a vehicle accident, you could owe many kinds of debts from it. You could be liable for any injured party’s current and future medical bills, loss of wages, pain and suffering, and other forms of damages. You could owe for property damage to vehicles and also to any building or traffic barriers or signs.
Your insurance may cover all of these obligations. Of course if you have no insurance, it’s all on you. More likely you have insurance but not enough. Especially if you have only the legal minimum coverage, a major accident and/or one with multiple vehicles could easily result in damages more than your insurance limits. Then you’d be on the hook for everything insurance doesn’t cover. That could amount to tens or even hundreds of thousands of dollars.
Bankruptcy Can Write Off a Student Loan, IF it Causes Undue Hardship
Writing off student loans is not easy. You must convincingly show that paying the loan causes you undue hardship, a tough condition to prove.
Criminal fines and restitution and child and spousal support are types of debts that bankruptcy essentially never discharges. Income taxes can be discharged but only after meeting certain conditions. We’ve covered these in our last few blog posts. Today we cover student loans.
Student loans are more like income taxes than criminal or support debts in that they CAN get discharged in bankruptcy. Like an income tax, a student loan just needs to meet certain conditions.
But unlike an income tax debt, the conditions for discharge of a student loan are much vaguer. Most of the income tax conditions are clear. These conditions require a precise understanding of the law and a thorough knowledge of the facts of your case. But if you and your bankruptcy lawyer are careful, you should know before you file your bankruptcy whether you can discharge a tax debt.
Exploring Federal and Texas Bankruptcy Exemptions
For some people, filing for bankruptcy can be a scary thing. In the beginning, you may not know what the future has in store for you and you may wonder which of your possessions you are allowed to keep and which possessions you must give up. Exemptions are an important part of the bankruptcy process. In a bankruptcy case, exemptions are the possessions that you get to keep after you have liquidated your luxury assets to help pay back a portion of your debts. Each state has its own guidelines for what property is exempt during a bankruptcy. In 17 states, including the state of Texas, you are able to choose between state exemption guidelines or federal guidelines, but you must choose one or the other. It is important to understand bankruptcy exemptions because they do differ.
Federal Exemptions
The exemptions that are listed here are the exemption amounts for each individual bankruptcy filer. That means if both you and your spouse are filing for bankruptcy, you can double the amounts. Here is a list of the current federal exemption amounts for each individual filer:
Bankruptcy Does Not Write Off Child or Spousal Support Debts
Child support and spousal support debts cannot get written off in bankruptcy. But is your specific divorce debt legally considered support?
We’re in a series of blog posts about special kinds of debt which bankruptcy may not discharge—write off. So far we’ve covered criminal fines and restitution, and income taxes.
Child and spousal support are more like criminal debts than like income taxes. Bankruptcy simply does not discharge a criminal debt, as long as it really is a criminal, not civil, obligation. Bankruptcy does discharge income tax debts that meet certain conditions. Bankruptcy simply does not discharge child and spousal support, IF it fits bankruptcy’s definition of support.
No Discharge of Support
Bankruptcy law is clear that neither Chapter 7 “straight bankruptcy” nor Chapter 13 “adjustment of debts” discharges support debts.
Bankruptcy Writes Off (Some) Income Taxes
Bankruptcy permanently writes off income taxes, as long as the tax meets certain conditions. For some taxes the conditions are easy to meet.
Bankruptcy DOES Write Off Income Taxes
There are certain very special debts that bankruptcy never writes off. Child and spousal support is a good example. See Sections 523(a)(5) and 101(14A) of the U.S. Bankruptcy Code.
Income taxes are different. Income taxes CAN be written off, as long as you meet a few conditions. These conditions mostly tie in to timing—when the tax was due and when (and whether) you filed its tax return.
The Two Timing Conditions
In most people meeting these conditions is straightforward. You essentially have to file your tax returns and wait long enough to comply with for the following two conditions:
Criminal Fines and Restitution Not Written Off in Bankruptcy
Bankruptcy does not write off criminal fines or restitution. But it can help by writing off other debts so you can pay crucial expenses.
If you owe criminal fines, penalties, forfeiture, or restitution, bankruptcy does not help you directly with those debts. But bankruptcy can still provide you essential help in paying for essential expenses, including criminal related ones.
The Criminal Fines and Restitution Exception
Neither Chapter 7 "straight bankruptcy" nor Chapter 13 "adjustment of debts" writes off criminal fines, penalties, forfeiture, or restitution.
Under Chapter 7 any "fine, penalty, or forfeiture" owed to "a governmental unit" is excluded from discharge (bankruptcy write-off). Section 523(a)(7) of the U.S. Bankruptcy Code.
(The only exceptions are if the debt is "compensation for actual pecuniary loss" or certain tax penalties. These are narrow exceptions that are beyond what this blog post covers.)
How Will a Bankruptcy Affect My Credit Score?
One of the biggest worries people have when they go to file for bankruptcy is what that will mean for their credit score. There is a lot of confusion surrounding bankruptcies and how they affect your credit. While it is true that they do negatively impact your credit score, it is not nearly as bad as some have let people believe. There is no one answer to how your bankruptcy will affect your credit score. It is a combination of what your credit score was before your bankruptcy and what appears on your credit report. Each situation is different and it is nearly impossible to say how a bankruptcy will affect your credit score.
Effects on Your Credit Score
While there is no simple way to tell how a bankruptcy will affect your credit score, FICO, one of the nation’s leading credit reporting bureaus, has released information on how bankruptcy and other credit mistakes could affect your score. According to FICO, those with higher credit scores before bankruptcy typically lose more points after a bankruptcy, while those with lower credit scores lose fewer points. Despite the difference in the number of points that the score drops, both people with high and low credit scores will have credit scores that end up in the same vicinity.
Debts Not Written Off in Bankruptcy
Most debts get written off—discharged—in bankruptcy. The only ones that aren’t are specifically listed in the Bankruptcy Code.
Debts Covered by the Discharge
The basic rule is that all your debts get discharged in bankruptcy unless a particular debt fits a listed exception.
Focusing on Chapter 7 “straight bankruptcy,” you will likely receive an Order of Discharge within about 4 months of filing the case. The heart of this court order simply states that “A discharge... is granted to [the debtor].”
So what are the listed exceptions—what debts are NOT discharged through the Order of Discharge?
Exceptions to Discharge
Section 523 of the Bankruptcy Code covers “Exceptions to discharge.” There are two categories of exceptions:
Writing Off Debts with Bankruptcy
Bankruptcy is about writing off or “discharging” debts. The timing of discharge is quite different in Chapter 7 and 13; both are permanent.
The main goal of most consumer bankruptcy cases is to get a fresh financial start through writing off debts. In bankruptcy the legal term for write-off is “discharge.”
In virtually all successful Chapter 7 “straight bankruptcy” and Chapter 13 “adjustment of debts” cases there will be a discharge of some or all of your debt.
In Chapter 7
People file Chapter 7 cases mostly to get a quick discharge of their debts. That is, the discharge of those debts that can be discharged, and that they want discharged.
Most debts qualify for discharge. We’ll dig into those that don’t next week. In the meantime Section 523 of the U.S. Bankruptcy Code covers “Exceptions to discharge.”
Types of Debt in Chapter 13 Bankruptcies
There is more than one type of bankruptcy, although Chapter 7 and Chapter 13 bankruptcies are the most common. In a Chapter 13 bankruptcy, your attorney and a team of other professionals are able to help you develop a repayment plan to pay back your debts. The repayment plan lasts for three to five years, depending on a variety of circumstances. Chapter 13 bankruptcies can be beneficial to individuals because it allows you to keep certain assets, such as your vehicle or your home. In a Chapter 13 bankruptcy, certain debts must be repaid before other debts.
Priority Debts
Priority debts are exactly what they sound like -- priority over other debts. These debts must be included in any repayment plan you enter and the plan must make sure that your priority debts are paid off first and in full. Typically priority debts include:
- Past-due child support;
- Past-due spousal support;
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